UPDATE 1-China to end auto tax incentives, to pressure shares

* China to end auto tax incentives on Jan. 1

* Small cars will be hit, especially in first few months

* Move though expected, may pressure auto shares

(Adds executives, analysts quotes, background)

By Fang Yan and Terril Yue Jones

BEIJING, Dec 28 (BestGrowthStock) – China will end tax incentives
for small cars on Jan. 1, the finance ministry said on Tuesday,
a long-anticipated step that would apply the brakes to the
runaway expansion of the world’s largest auto market.

The scrapping of the incentives will affect sales of small
cars, which comprise about 60 percent of passenger car sales in
China, but will not dampen auto demand in a country where per
capita car ownership remains low compared with mature markets.

The move, though expected will still liklely hit Chinese
auto stocks, such as FAW Xiali (000927.SZ: ), Chongqing Changan
Auto (000625.SZ: ), which fell after Beijing’s city government
imposed quotas on new car registrations last week.
[ID:nTOE6BN02B]

“Everyone is actually expecting the government to scrap the
incentives. Many people that previously had no plan to buy cars
this year changed their mind,” said John Zeng, an analyst with
J.D. Power Asia Pacific.

“Why hold on to the money for a couple of months and end up
paying more? It will save you a few thousands of yuan if you buy
a Chevrolet Sail with the incentives,” he said, referring to
General Motors (GM.N: ) top-selling model in China.

With effect from Jan 1, a sales tax of 10 percent will be
imposed on cars with a 1.6 litre engine or smaller, the finance
ministry said on its website (www.mofcom.gov.cn).

It did not say whether a 3,000 yuan ($450) rebate for
fuel-efficient cars would be remain in place along with
subsidies for farmers who exchange used vehicles for new ones.

Many dealers have already sold out, with customers having to
wait months to get their car due to the year-end spending
frenzy, auto dealers told Reuters.

As such, monthly car sales might fall year-on-year in the
first few months of next year, industry insiders said.

For the full year, the market will continue to grow at a
more subdued, stable pace due largely to demand in inland areas
replacing big, coastal cities as major growth areas for the auto
industry.

MORE RATIONAL GROWTH PATTERN

China’s auto industry grew 53 percent in 2009 and 35 percent
in the first 11 months of 2010.

In the first 11 months, SAIC, a long-time partner of GM,
sold 3.29 million vehicles, up 35 percent. It will aim to sell 4
million vehicles next year, its president, Chen Hong, said.
[ID:nTOE6BK010]

Richard Baker, deputy general manager of the sales arm of
Ford Motor (F.N: ) China car venture, said the impact from the
removal of the tax incentives would not be long lasting.

Terry Johnsson, vice president for GM’s China operations,
concurred, saying he expected China’s auto market to grow 10-15
percent next year even if auto incentives were “rolled back to
zero”. [ID:nTOE6BK06U]
(Editing by Lee Chyen Yee and Dan Lalor)

UPDATE 1-China to end auto tax incentives, to pressure shares